Certified Government Financial Manager (CGFM) Practice Exam 2026 - Free CGFM Practice Questions and Study Guide

Horizontal equity in tax policy is grounded in the principle that individuals with the same financial ability, typically measured by income level, should face similar tax liabilities. This concept promotes fairness in taxation by ensuring that people who earn the same amount contribute the same, regardless of other factors such as their source of income or personal circumstances.

This approach is vital for preventing inequities that can arise when individuals in similar financial situations face markedly different tax burdens. By adhering to horizontal equity, tax systems aim to maintain public trust and ensure that taxpayers feel they are treated equitably when meeting their tax obligations. Addressing disparities in tax burdens among those with equal income enhances the perceived fairness and integrity of the tax system.

The other perspectives mentioned in different choices do not align with the concept of horizontal equity. For instance, requiring different taxpayers with varying income levels to pay more taxes or implementing a flat tax rate introduces complexity and can undermine the basic equity principle that horizontal equity seeks to uphold. Thus, option B appropriately captures and reflects the essence of horizontal equity in tax policy.